4Q24F: stable double-digit earnings growth performance

We estimate KLBF booked 7-8% y-y sales growth in 4Q24F, driven by its pharma and consumer health divisions. We attribute the continued strong pharma sales growth to KLBF’s vast distribution network and more climate-sensitive diseases. The consumer health division’s sales also improved, which we believe could be due to the company’s new branding initiatives. The distribution business, as well, gained tailwinds from the strong sales growth of medical devices. Meanwhile, performance of the nutritional division remained sluggish as consumers traded down. We expect the company to maintain its high A&P-to-sales levels in order to invest for consumer health branding transformation, which we think is very positive for the company to sustain strong growth in the long run. We believe KLBF’s overall earnings growth hovered at around 15% y-y in 4Q24F, which should be in line with management’s guidance and consensus estimates.

Consumer health brand transformation

We believe the consumer health division’s new management (Transforming the brand) will sharply focus on repositioning and rejuvenating the three major brands, namely Bejo (herbal medicine), Extra Joss (energy drink), and Promag (Antiacids). New management has started with a radical advertisement through the “Anti Angin Angin Club” tagline, highlighting Bejo as a top herbal medicine option other than Tolak Angin (Sidomuncul’s [SIDO IJ, Buy] brand) and Antangin (Deltomed, unlisted). We estimate Bejo’s sales reached ~IDR200bn (only ~5% of consumer health sales) in 4QFY24, but based on our channel checks, new management sees potential for this category to witness +50% y-y sales expansion in 2025F via market share gains. We project the herbal medicine market size to hover at IDR3,000-4,000bn.

Moreover, the company plans to launch a new premium ready-to-drink Extra Joss variant, eyeing a new market base. We estimate Extra Joss will make significant contribution of IDR700bn (~18% of sales) in 2025F (we highlight that it typically contributed ~IDR1,000bn of sales in the past). Also, following the new market base expansion, new management believes the Extra Joss brand could grow +30% y-y in 2025E. We also expect the Promag brand, which is the company’s largest sales contributor, to draw further consumption as it is targeting coffee drinkers and younger consumers. All in all, we project the consumer health division’s sales to grow 8-15% y-y in FY25F, and we believe that the stronger growth trend will be more evident from 2Q25F. The consumer health division is crucial, given the very high margin levels; hence, higher sales growth will have a significant trickle-down impact to the company’s overall earnings.

Undemanding valuation; higher USD costs can be minimized

KLBF share price has declined substantially in the past three months (-24.5% vs the JCI’s -6%), most likely triggered by a weakening IDR. We note that KLBF has a high exposure to USD-linked costs, which can translate into 2.5% GPM change for every 10% USDIDR movement. The impact to earnings would be minimized via: 1) buffer stocks (3 to 6 months), 2) USD cash reserves, 3) gradual shifting from USD to RMB in raw material procurement, and 4) a better sales mix of high-margin businesses (i.e., consumer health). We project KLBF to book high-single-digit sales and earnings growth this year. We maintain our Buy rating and TP of IDR2,200, which is based on a FY25F P/E target of 28x (+0.7SD to its five-year mean). Currently, the stock is trading at 15.6x FY25F P/E. Downside risks would be worse-than-expected IDR weakening.

Fig. 1: KLBF – segment sales CAGR trend

Fig. 2: KLBF – GPM by segment (9M24)

Fig. 3: KLBF – A&P-to-sales ratio vs sales growth

Fig. 4: KLBF – salary expenses-to sales ratio vs sales growth

Fig. 5: KLBF Bejo brand-new advertisement

Fig. 6: KLBF Extra Joss – new product soft launch

Fig. 7: KLBF’s advertisement to promote Promag consumption after drinking coffee

Fig. 8: KLBF – P/E band

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Sandy Ham (sandy.ham@verdhana.id),

Jody Wijaya (jody.wijaya@verdhana.id) &

Samuel Christian (samuel.christian@verdhana.id),